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General Motors vs. Ford: Which Auto Stock Should You Buy?

The Automotive-Domestic Industry is in the top 36% of over 250 Zacks Industries and two stocks investors may consider buying out of the group are General Motors GM and Ford Motor Company F.

The Auto sector is expected to experience solid growth with the emergence of electric vehicles (EVs) and Hybrids. General Motors and Ford both have impressive EV/Hybrid lineups which include Ford’s Mustang MACH-E and GM’s Electric Hummer.  

Stock Performance

The Automotive-Domestic Industry has been hit hard by rising inflation with GM and Ford both down about 44% year to date. Both stocks have also underperformed their peer group’s -36% drop and the S&P 500’s -25%.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Looking back a bit, Ford stock has climbed +53% over the last two years to blast GM’s +1% and its peer group’s -33% decline. Ford has also crushed the benchmark’s performance over the last two years as shown in the above chart, while GM has lagged.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

With that being said, we can see that GM’s +31% jump over the last 10 years has outperformed Ford’s +15%. Both stocks have outperformed their peer group’s +8% over the last decade, but underperformed the benchmark. The gap between the benchmark could narrow going forward if Ford, GM and others are able to produce the kind of returns from the EV revolution that Wall Street hopes.

Valuation

Let’s take a look at the value both companies offer investors at current levels. Both stocks currently sport an “A” grade for Value in our Style Scores system.

GM shares currently trade at 4.8X forward earnings, well off their decade high of 22.8X and below the median of 7.2X.

Ford also trades at what appears to be a discount relative to its past at 5.6X forward earnings. This is well below its decade-long high of 16.5X and 7.8X median.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

While the price of Ford shares at $11.56 is still significantly lower than General Motors’ $32.09 per share, GM appears to offer more value relative to its past as it trades further from its highs.

Growth Estimates

Ford and General Motors are both set to profit from the innovation and transformation of the auto industry. The EV market is projected to be valued at upwards of $500 billion by 2030 while growing at a CAGR of over 20%.

GM earnings are expected to be down 5% this year and decline another 4% in FY23 at $6.42 a share. Ford appears to be dealing with the effects of rising operating costs much better than GM at the moment, with earnings expected to be up 26% this year and virtually flat in FY23 at $2.00 a share.

GM’s earnings decline is an indicator that operating costs are weighing on the stock as sales are expected to grow 21% this year and another 6% in FY23 to $163.72 billion. Ford is also expected to have solid top line growth, with 2022 sales set to rise 14% and another 3% in FY23 to $149.75 billion.

Ford’s growth in both its top and bottom line over the next year indicates the stock may be the better option for the near term.

Dividends

Stocks that pay dividends are always an added bonus for investors, especially in times of uncertainty when more patience is needed.

Ford and General Motors both offer dividends to their shareholders again after suspending them during the pandemic.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Ford has a notably higher annual dividend yield of 5.28% at $0.60 a share compared to GM’s 1.11% yield at $0.36 a share.

With the pandemic throwing a wrench in how the two companies may pay dividends going forward, it is important to note that GM has not raised its dividend in the last five years while Ford has raised its dividend twice.

Bottom Line

For now, Ford appears to be the better stock at least for the short term. GM currently lands a Zacks Rank #4 (Sell) with its earnings estimate revisions trending down. Ford on the other hand is seeing some growth in its top and bottom line for this year and FY23. Ford currently lands a Zack Rank #3 (Hold) and also offers investors a higher dividend yield at the moment.


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